The Composition of a Complete Appraisal Report

As formerly discussed in earlier posts of the Info/Funding Page,  the Appraisal Report of a project is an essential requirement of a Due Diligence completed by Capital Corp Merchant Banking.

Experienced business professionals understand that the three basic approaches employed by an Appraisal Firm to reach a value conclusion are (1) income, (2) sales, and (3) cost.  It has, however, been the experience of Capital Corp Merchant Banking that many previously completed Appraisal Reports provided to us are often lacking one - or sometimes two - of the above approaches.

In fact, a large percentage of the conclusions of such reports based the value solely on market comparables.  This is  a serious flaw for two reasons: (1) the global financial crisis has severely depressed or altered such values; and (2) although the “market” surrounding the project is positive, it does not necessarily follow that the cost or expected profit of a project will outweigh the acquisition or initial investment.

Furthermore, it is understood that in some instances one or two of the aforementioned approaches may not be valid, but there still must be commentary by the appraiser as to why that is.  

To recap: a complete Appraisal Report must include analysis in regards to discounted cash flows from the project, supporting market data, and cost analysis to provide an uncontestable project value conclusion.


Respectfully,

Capital Corp Merchant Banking